Most finance ministers would give their right arm to be in the same position as Sigbjørn Johnsen, their Norwegian counterpart. But even very rich countries have problems…
What it boils down to is that Norway has lots of things lots of people want. Namely oil, currency and houses. The result is a growing property bubble alongside a fast appreciating currency, which the central bank is struggling to control due to a catch-22 associated with hiking interest rates — (higher rates help to curb the property boom but only exacerbate the currency appreciation problem). Read more
And why Norway’s property market is still looking ever so slightly peaky.
First, some charts courtesy of Alan Ruskin at Deutsche Bank which point to those countries which maybe haven’t seen the end of their house-price pains. The first chart shows the pain already taken: Read more
There’s a great note from Marc Ostwald of Monument Securities this Thursday morning.
And he gets right to the heart of the issue. Read more
Scandinavian currencies have taken over the Swiss franc’s mantle of haven currencies of choice following the Swiss National Bank’s decision to attempt to put a ceiling on the value of the franc, the FT says. Since the SNB announced its move on Tuesday, the Norwegian krone has climbed more than 2.5 per cent to hit an eight-and-a-half-year high of NKr7.4825 against the euro, while the Swedish krona has gained 2 per cent to a three-month peak of SKr8.9420. Scandinavian currency bulls have been reassured by the reaction of central banks in Norway and Sweden. The former dismissed speculation that it would follow Zurich’s lead and intervene to weaken its currency, while Sweden’s central bank surprised investors by indicating that interest rates in the country were likely to rise by the end of the year.
Price action in the Norwegian krone on Tuesday:
Trading volumes in eurozone government bonds issued by Greece, Ireland and Portugal have fallen to record lows as disagreements over another international bail-out for Greece revive fears of a default, reports the FT. The volume traded in Greek, Irish and Portuguese sovereign debt fell to €1.1bn in May, a sixfold drop from November and the lowest since 2001, when data were first collected, says Tradeweb, the electronic trading platform. Even eurozone pension funds and insurance groups, which have until now traded these bonds, have backed off recently amid fresh doubts, say fund managers. However, Norway’s $570bn sovereign wealth fund voiced a “very positive” view on the long-term outlook for Europe, despite shifting more assets into emerging markets.
First the Norwegians may decide they’re not playing ball with the €25m they’re due to give Greece.
And then Fitch Ratings throws in the towel on Greece’s BB+ rating. It’s now rating Greece B+, which shifts the country from the “non-investment grade speculative” bracket to a “highly speculative” one. Read more
It’s probably safe to say the Norwegian krone has already been pretty well tipped in 2011, given a certain well-known correlation:
No, not north to German bunds. Further north.
Pär Magnusson and Filip Andersson — Scandinavian macro and fixed income analysts at RBS — have a few things they want to get off their chest at the moment, clearly. As they write (emphasis and link ours): Read more
Sweden’s prime minister on Sunday urged the country to “stand up for tolerance” after a botched terrorist attack in central Stockholm on Saturday highlighted growing Islamic extremism across the usually peaceful Scandinavian region, reports the FT. Fredrik Reinfeldt condemned the attack, in which a suspected suicide bomber was killed, as an assault that risked inflaming racial tensions in a society with a large Muslim population. The incident followed warnings from Sweden’s security service of the growing threat from Islamic extremists and came amid a Norwegian probe into a suspected terrorist plot aimed at neighbouring Denmark
Same sort of messages from Turkey, Poland and Norway: New orders were up 3.2 and 1.7 points, respectively. Norway was basically flat.
Not going to move the global needle but reassuring consistency. Read more
Two Norwegian day traders have been handed suspended prison sentences for market manipulation after outwitting the automated trading system of a big US broker, the FT reports. The two men worked out how the computerised system would react to certain trading patterns – allowing them to influence the price of low-volume stocks. The case, involving Timber Hill, a unit of US-based Interactive Brokers, comes amid growing scrutiny of automated trading systems after the so-called “flash crash” in May, when a single algorithm triggered a plunge in US stocks. Svend Egil Larsen and Peder Veiby had won admiration from many Norwegians ahead of the court case for their apparent victory for man over machine. But prosecutors said Mr Larsen and Mr Veiby “gave false and misleading signals about supply, demand and prices” by manipulating several Norwegian stocks through Timber Hill’s online trading platform.
Inevitable, really. Though we wouldn’t have expected the staid Norwegian central bank to be the first (?) to take up legal arms.
After the US Securities and Exchange Commission exposed Citi’s super senior subprime slip — in which the bank misled investors over its subprime exposure between July and October 2007 — now come the lawsuits. Read more
Eurozone bond markets gained a significant boost after one of the world’s biggest investors stepped up purchases in the second quarter of debt of the troubled peripheral economies of Greece, Portugal and Ireland, reports the FT. The move by Norway’s sovereign wealth fund, the world’s second-biggest SWF with $450bn of assets under management, followed a volatile week for eurozone markets. But analysts warned that the bond markets of the weakest economies were still vulnerable amid continuing worries that one or more will default.
Two Norwegian day traders who apparently outwitted the electronic trading systems of a US broker have sparked a debate in the country over the growing influence of machines in financial markets, reports the FT. The two men have been indicted in Norway on charges of market manipulation after allegedly tricking the electronic trading system of a big US broker into raising the price of shares on the Oslo Stock Exchange. Norwegian police said the men had worked out a pattern of trading that caused the system to jack up prices, allowing them to sell at a profit. Many small investors have leapt to the defence of the accused men, lauding them for striking a blow against the automatic trading software that increasingly dominates global financial markets.
If you’re a BP investor who thought twice about catching the falling knife of the firm’s post-Gulf spill shares this summer — well, spare a thought for Norway.
Thanks to the government’s sovereign wealth fund, it’s faced a similar dilemma. Read more
The European Union’s banking stress tests cover 91 banks in 20 countries. Seven of those financials are Nordic — but none of them are Norwegian, reports FT Alphaville. Norway is of course, not a member of the EU, but it keeps close ties, and seems to have had the option to participate in the tests — if it wanted. Only, it really didn’t. The head of the Norwegian FSA, a Mr Bjørn Skogstad Aamo is quoted in Thursday’s Dagens Naeringsliv saying there was “no national need” for its banks to participate in the stress test. Read more
Arresting stuff from Alan Ruskin of RBS, who has just pinged out an “Alpha Alert”:
Pure panic. It is rare to see a day where the news flow fits so poorly with the decimation in the risk trade, from currencies to high yield to the once sweet and innocent money market. If this is a sovereign crisis (and this is surely still the core of the nervousness), the sovereign bond markets are doing very well thank you. All the major global fixed income markets are up, and even the epicenter of the crisis, Greece is hanging in, albeit no doubt with a little help from their new found Central Banker friends. The disjuncture between CDS (where the periphery CDS is up sharply) and bond spreads, show how European official intervention (in both markets) have reduced visibility, which no doubt is also part of the problem. Across an array of asset classes, I hear from traders a simple refrain – investors want to get close to base. That gold has gone down today is a telling comment on how much this has been a story of investors liquidating even winning trades. In the currency world, we have become used to thinking about yen carry trades blowing up, but this feels like the first clean blow-up of the EUR carry trade. Read more
Nordic countries on Tuesday gave the go-ahead for up to €444m more aid for Iceland’s stricken economy even as northern Europe counted the mounting cost of travel disruption caused by the eruption of an Icelandic volcano, reports the FT. The Nordic region has been among the hardest hit by ash fallout from the Eyjafjallajökull volcano yet Sweden, Denmark, Norway and Finland appeared to be in a forgiving mood as they agreed to end a long delay in funding for Iceland’s economic recovery programme.
When the Reserve Bank of Australia took the plunge on Monday and became the first G20 central bank to raise interest rates since the global downturn began, it triggered big gains for equity markets around the globe. The move was seen by many as further evidence that the global economy was recovering from recession.
But was that the correct reading of the RBA’s decision? Not, according, to Morgan Stanley’s Joachim Fels: Read more
An elegant note out from UBS analysts John Paul Crutchley and Alastair Ryan on Friday — discussing the perils of the European Central Bank’s liquidity ops.
Here’s the crux of the problem, according to UBS: Read more
CMA reports on Thursday that Norway has been overtaken by Germany as the safest country in terms of sovereign CDS. Here’s the data, as it stands now:
All eyes have been on the Fed in the past 24 hours – and all currency gyrations, particularly the dollar’s sharp depreciation – have been attributed to the Fed’s move to spend $300bn on buying long-term Treasuries, among other measures. As some currency analysts observed on Thursday, however, the dollar’s steep decline suggests there may have been some over-reaction to the Fed’s move.
But there are other factors at work behind the dollar’s downward trajectory – not least, growing disenchantment in some parts of the world with US economic policies (or lack thereof), and rumbles about dumping the dollar as the world’s reserve currency and adopting a shared basket of currencies. Read more
Norway is poised to dip more deeply into its $332bn sovereign wealth fund to finance a new fiscal spending package. The oil-rich Norwegians will use the fund, the world’s second largest after Abu Dhabi, to offset a rapid slowdown in economic growth next year. Jens Stoltenberg, Norway’s leftwing prime minister, told the FT in an interview the government will unveil spending measures in January on top of its previously announced expansionary budget for 2009. Norway’s central bank is widely expected to cut interest rates on Wednesday, with private sector analysts expecting a 100 basis point reduction to 3.75 per cent. The prime minister said he would welcome “a stronger reduction in interest rates than had been predicted by Norges Bank”